Customer Due Diligence for Banks issued by the Basel Committee on Banking Supervision

MEMORANDUM Series of 2002

TO: ALL BANKS & NON-BANK FINANCIAL INTERMEDIARIES PERFORMING QUASI-BANKING FUNCTIONS (NBQBS)

For the guidance of all concerned, attached is a paper on Customer Due Diligence For Banks issued by the Basel Committee on Banking Supervision which paper highlights the Know-Your-Customer (KYC) standards to be observed in the design of KYC programs best suited for your purposes.

The essential elements should start from risk management and control procedures and should include (1) customer acceptance policy, (2) customer identification, (3) ongoing monitoring of high risk accounts and (4) risk management. Banks should not only establish the identity of their customers, but should also monitor account activity to determine those transactions that do not conform with the normal or expected transactions for that customer or type of account. KYC should be a core feature of banks' risk management and control procedures, and be complemented by regular compliance reviews and internal audit. Nonetheless, it is important that the requirements do not become so restrictive that they deny access to banking services, especially for people who are financially or socially disadvantaged.

In our review of your KYC programs, the guidelines herein indicated should be adopted and shall be used as basis of our assessment of your anti-money laundering programs. It is understood that transactions of your Trust departments shall be subject to the same or similar KYC standards.

ALBERTO V. REYES Deputy Governor